Senate Majority Leader Harry Reid has scheduled floor action on the latest bill aimed at addressing China’s currency misalignment, The Currency Exchange Rate Oversight Act of 2011, for October 3rd. The plan is to hold a cloture vote to shut down the filibuster on the bill and move it forward for a vote. It is possible that the bill could be voted as soon as the end of next week.
The bill is a hybrid of legislation passed in the House last year, and a bill proposed earlier this year by Senators Sherrod Brown and Olympia Snowe. Although it does not refer specifically to China its supporters have been focusing only on China and its currency value. Senator Schumer remarked it (passage of the act) will “send a shot across China’s bow,” and Senator Reid wants to “send a message to the Chinese.” Other countries have at times been accused of currency manipulation but none have had the economic impact of China.
As proposed, the bill would replace the guidelines used to identify countries who manipulate their currency. Among other things, Treasury is to create a biannual report identifying countries misaligned currencies and priority countries. For priority countries, if the country does not take steps to rectify the misalignment then US sanctioned consequences would be triggered. These actions could include opposition to many forms of international financing for projects in the designated countries, implementation of trade remedies such as antidumping duties and bans on federal government procurement agreements with the designated countries, a request for a WTO dispute settlement panel to hear the dispute and other forms of remedial currency intervention.
Another important provision is that it limits the President’s waiver authority. It is quite possible that the President will not agree with Congress limiting its ability to issue waivers in instances of national economic need or security. If the bill is passed by both Chambers and sent to the President, he will be hard pressed not to sign it. At the same time, he can also use his authority to notify Congress that he will not implement those provisions which limit his authority.
The Obama administration doesn’t seem to be on board with this type of action aimed at China. They have not directly spoken out on the proposed bill but Treasury Secretary Geithner has recently stressed the importance of dealing with China’s currency undervaluation with positive leverage and in accordance with our international obligations. Some fear that passage of this bill could reverse recent progress made by the administration in pressuring China to open up their markets further to American goods. Despite opposition Obama likely does not have a choice as he is working with diminishing clout, against vast bipartisan support of the bill (20 Senate co-sponsors and rising, including 5 Republicans) and the continual strong public perception that China is to blame for US job loss.
